Managing Partner Jim Scheinberg recently spoke with PLANSPONSOR‘s Lee Barney on how plan sponsors should examine track records and operational qualifications when hiring an outsourced chief investment officer.
“More defined benefit (DB) plans are using outsourced chief investment officers (OCIOs) to improve their performance and funding, sources say.
In fact, PLANSPONSOR’s sister publication Chief Investment Officer found in its 2020 OCIO Survey that the main reason why institutional investors hire OCIOs is a quest for absolute return, cited by 66% of respondents. Fifty-nine percent of OCIO clients farm out all of their portfolios, whereas 21% outsourced less than 25% of their holdings, the survey found.
Nearly two-thirds of survey respondents ceded total control of investment management, hiring their OCIOs as 3(38) fiduciaries.
It is generally larger firms that turn to OCIOs, says Jim Scheinberg, founder and chief investment officer (CIO) at North Pier Search Consulting, which has been helping DB plans and other institutional investors select and monitor OCIOs for the past nine years.
“OCIOs are similar to other consulting relationships pension plans enter into,” Scheinberg says. “In the case of OCIOs, they are responsible for investment selection and asset allocation but, if they are a 3(38) fiduciary, which most are, they layer in discretionary authority for hiring and firing managers. Depending on the pension plan’s investment policy statement [IPS], they have narrow to wide authority to maneuver the portfolio to affect the asset allocation of funds. Many OCIOs will take administrative authority, as well, to execute manager contracts.”
OCIOs now oversee more than $2 trillion in institutional assets in the U.S., up from $600 million in 2014, Scheinberg says. “They are very prevalent and growing meaningfully…”